Friday, June 13, 2014

Condominium construction increases

- by New Deal democrat

There was a good article in Bloomberg yesterday on a recent increase in condominium construction:

For the first time since the U.S. housing crash, new condominium towers are sprouting .... “We’re in the very early stages of a long recovery in condos,” Sam Khater, deputy chief economist for Irvine, California-based CoreLogic Inc., said in a telephone interview. “Now you’re seeing rental booming, but today’s renters are going to be tomorrow’s condo buyers.” ....

Builders broke ground on 22,000 for-salemultifamily residences last year, up 4.8 percent from 2012 and 47 percent from the post-crash nadir in 2010, Census Bureau data show. In the first quarter, 8.5 percent of the 71,000 multifamily units that started construction were built as for-sale properties, up from a 6.9 percent share a year earlier, according to the data.

"There's a lot of pent-up demand from first-time homebuyers and condos are a good first stop,” [David] Crowe[, chief economist for the Washington-based National Association of Homebuilders]. said in a telephone interview. “Dense developments like condos give the lifestyle they’re looking for.”

As I pointed out in a series of posts last month, the single family home market has been dead in the water since early 2013, not contracting significantly, but its growth completely stopped by higher prices and higher mortgage rates. Meanwhile, renting has been booming, with near record low vacancies, and median rental prices increasing over 5% in the last year.

As in the late 1960s and 1970s, when increasing interest rates coincided with the surge of Boomers hitting adulthood, multi-family construction of condominiums is booming. With cramped employment prospects and record student loan debt, Millennials are following the same path.

We are seeing a secular surge in apartment and condominium building, that will be followed, once economic conditions are more propitious, by a boom in building of new single family homes.

Housing starts and permits for May will be released on Tuesday, and I expect to see a continued YoY decline in single family home construction. Whether multi-unit construction continues to rescue the overall housing market is the more interesting question.